When the fears of a global recession begin to diminish some of the big tech companies that have been hit could come roaring back.
Today’s trade idea is a perfect example of this, and it’s ready to move now.
And since it has such a liquid option chain, I’ll lay out a simple option trade that could take a $5 option to $15 or higher.
Read below for the details.
As you can see from the chart of Microsoft MSFT below, it has held above its 50-day average.
If the market bounces, this is likely to go back out to new highs even if the QQQ or SPY struggle to get that far.
Microsoft is a high-priced stock at $135, so here’s a simple way to play it for around $500, and have the potential for that to grow to $2,000.
The strategy is an option call spread. If you’ve never traded options, then you should just watch this trade rather than risk any money.
The trade is to buy the December 19, 140/160 call spread. This will probably cost about $5.50, which equates to $550 dollars for each one you buy.
Each spread will move the equivalent of owning about 35 shares.
If MSFT trades over $137, that’s the buy trigger.
I’d exit the trader under $133.50. With this in mind, you should plan on losing $150 on each spread if it gets stopped out.
However, keep in mind that if MSFT is not trading above 140 on December 19, you’ll lose your entire investment!
If the trade hits the stop, or the value of the spread drops to $300, you should exit to preserve capital.
The objective for this trade is to see MSFT move up to $155 in the next 30-60 days in which case the value of the spread will likely be around $10 or a 100% gain.
However, if MSFT and the market have an unexpected bullish move into the end of the year and it is over $160 on December 19, then the spread will be worth $2,000. That’s about a 300% gain, better than a triple!
Rick Nartarian, Chief Investment Officer
Darwin Wealth Creation